Amber Mining and Milling, Inc., contracted with Truax Corporation to have constr

Question

Amber Mining and Milling, Inc., contracted with Truax Corporation to have constructed a custom-made lathe. The machine was completed and ready for use on January 1, 2013. Amber paid for the lathe by issuing a $800,000, three-year note that specified 6% interest, payable annually on December 31 of each year. The cash market price of the lathe was unknown. It was determined by comparison with similar transactions that 11% was a reasonable rate of interest. (FV of $1, PV of $1, FVA of $1, PVA of $1,FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

Complete the below table to prepare the company's journal entry.

Total values are based on:

n=

i=

Cash Flow: Amount: Present Value:

Interest

Principle

Price of Machiney:

Prepare the journal entry on January 1, 2013, for Amber Mining and Milling’s purchase of the lathe. (If no entry is required for an event, select "No journal entry required" in the first account field.)

Prepare an amortization schedule for the three-year term of the note.

Prepare the journal entries to record (a) interest for each of the three years and (b) payment of the note at maturity. (If no entry is required for a particular event, select "No journal entry required" in the first account field.)

Amber Mining and Milling, Inc., contracted with Truax Corporation to have constructed a custom-made lathe. The machine was completed and ready for use on January 1, 2013. Amber paid for the lathe by issuing a $800,000, three-year note that specified 6% interest, payable annually on December 31 of each year. The cash market price of the lathe was unknown. It was determined by comparison with similar transactions that 11% was a reasonable rate of interest. (FV of $1, PV of $1, FVA of $1, PVA of $1,FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

Required: 1.1

Complete the below table to prepare the company's journal entry.

Total values are based on:

n=

i=

Cash Flow: Amount: Present Value:

Interest

Principle

Price of Machiney:

1.2

Prepare the journal entry on January 1, 2013, for Amber Mining and Milling’s purchase of the lathe. (If no entry is required for an event, select "No journal entry required" in the first account field.)

2.

Prepare an amortization schedule for the three-year term of the note.

3.

Prepare the journal entries to record (a) interest for each of the three years and (b) payment of the note at maturity. (If no entry is required for a particular event, select "No journal entry required" in the first account field.)

Explanation / Answer

1.1

Total values are based on:

n= 3 years

i= 6%

Cash Flow: Amount:       PVF Present Value:

Interest                   48000        2.443715                   117298.3

Principle                800000        0.731191                 584953.1

Price of Machiney:   702251.4

1.2 Debit lathe $800000

credit note payable $800000

1.3 amortization shcedule

Interest

YEAR 1 =43243.24

YEAR 2 = 38957.88

YEAR 3 = 35097.19

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